Financial advisors must be retirement ‘managers’: Gadenne

A new trend is emerging in the retirement planning space, Francois Gadenne wrote for Advisor Perspectives, an interactive publisher serving the financial industry, on Aug. 9. Clients once sought likely expectations of returns on their financial assets, but now look for reasonable certainties of payments from those assets, Gadenne said.

“Success in this environment will accrue to those advisors who act as true retirement professionals rather than to those who take a technician-oriented approach,” Gadenne wrote, urging advisors to build upon modern portfolio theory rather than be limited by it.

“The larger range and greater complexity of retirement advisory tasks, when compared to investment advisory tasks, is driving the emergence of a retirement management profession,” he said.

Gadenne describes three categories of firms based on a theoretical framework proposed by David Maister in the mid-1980s, then an assistant professor of business administration at the Harvard Business School.

Maister broke the service industry into three categories to differentiate between professionals and technicians. Gadenne adapts those categories for the financial services industry:

Brains: Advisors who perform client tasks that are at the creative edge of their practices and deal with unique projects that require fundamentally different customizations from client to client. Firms in this group have a narrow organizational structure with a few employees supporting top-level advisors.

Gray Hair: Advisors who deal with issues that are similar to what they have seen before and consciously work to leverage and to scale up their past experiences. These firms have many entry-level employees supporting a few top-level workers.

Procedural: Advisors with well-defined and well-specified client tasks who seek to deliver services in the most timely and cost-efficient manners. Procedural types of firms have several tiers of employees.

One way to determine where a firm falls on the spectrum is to count how many services the firm provides that are diagnostic, compared with how many involve execution. A firm that requires more diagnostic tasks to operate falls in the brains category, Gadenne wrote, while one that uses more execution tasks is a procedural firm.

“Retirement planning is not an exercise in illustrating long-term perfection — instead, it is an ongoing effort to discover the most tolerable imperfections,” he said.

To be successful, according to Gadenne, firms need to model themselves after other firms in the brains category.

“Developing customized, diagnostic-intensive retirement plans to create monthly retirement income will lead to new forms of professional tasks, new demands for professionals and new categories of professional services firms,” he says. “As delivering reliable near-term outcomes becomes more important than managing longer-term probabilistic expectations, clients will seek retirement planning institutions and individuals who are successful in managing professional and technical talent as well as client relationships.

Sponsored Showcase

The Small Business Advisor, brought to you by BenefitsPro and sponsored by LegalShield Business Solutions was developed to educate and provide benefits brokers with the information they need to understand and serve the needs of small businesses.